Malawi is trying to bolster its mining and tourism sectors to help avoid chronic foreign exchange shortages that cripple its economy each year.
The latest forex shortages have been particularly severe. Levels of hard currency to pay for government imports of food and fuel have been below the critical three-month level for some time.
The crisis has been exacerbated by an El Nino-induced drought that has decimated crops across several countries in southern Africa and a devastating cyclone in 2023 that displaced over half a million people.
Motorists have been spending night at filling stations since the government began rationing fuel in October, limiting each vehicle to 20 litres of petrol at a time. Queue of cars stretch for miles around city blocks and suburbs waiting to fill up.
‘“If the country can do serious investment into mining, we can change our situation,” said Thom Khanje, spokesperson for the National Planning Commission, a think-tank behind Malawi 2063, the country’s long-term development plan.
He said: “Mining has one advantage over agriculture, it is insulated from natural disasters caused by climate change.
“Emphasis should be on value adding. That way we will not only get more from the minerals but we will also create jobs.”
Mining accounts for just one percent of gross domestic product (GDP). However, that is expected to grow over the next decade as new mining projects ramp up production.
Malawi Chamber of Mines and Energy estimated that mining’s share of GDP could soar to 12 percent by 2027, which would make it the country’s second largest forex earner after tobacco.
Tobacco accounts for 60 percent of Malawi’s exports, 13 percent of its GDP and 23 percent of its total tax base, according to the World Bank.
The Kayelekera Uranium Mine in Karonga, a niobium mine at Kanyika in Mzimba, a rutile-graphite mine at Kasiya in Lilongwe and a rare earth minerals project at Kangankude in Balaka are all expected to become fully operational by 2027.
Illicit financial flows
Anti-corruption advocates worry that Malawi’s rush to develop its mining sector could lead to an increase in illicit financial flows (IFFs) through corruption, smuggling, tax evasion and theft.
The Attorney General’s office said it was trying to recover $310 billion (about K542 trillion) from US-based Columbia Gem Stone, which operates in Malawi as Nyala Mines, for underreporting income from the sales of rubies and sapphires since 2008.
In 2015, an investigation by ActionAid in Malawi into operations of Kayelekera Uranium Mine revealed that the government lost $43 million (about K75 billion) in royalties due to exploitation of international tax treaties and poorly negotiated mining agreements that gave away too much in tax holidays.
Transparency concerns
While Malawi eyes a vibrant mining industry, civil society groups have raised concerns about the lack of transparency in the sector.
Kennedy Rashid, executive director of the Natural Resources Justice Network, said a confidentiality clause in the newly-gazetted 2023 Mining Act allows companies to keep agreements they sign with the government secret until two years after their licence expires.
“Communities and other stakeholders have no chance of analysing crucial documents which can uncover underreporting of profits as revealed in the Columbia Gem Stone case,” he said.
By not publishing mining agreements, Malawi was in contravention of standards set by the Extractive Industry Transparency Initiative (Eiti), he said. Malawi became an Eiti member in 2015.
The Eiti sets international standards for fighting corruption in managing revenues from oil, gas and mineral extraction.
The standards include good governance, clear legal framework and fiscal regimes and publishing of contracts and revenues.
Grain Malunga, director and country manager of Lotus Africa, which owns Kayelekera Uranium Mine, said the confidentiality clause in the new law was about protecting intellectual property instead of blocking access to information.
Ministry of Mining spokesperson Tibonge Kampondeni said by withholding information the government was safeguarding data.
She said: “It is common practice in the mining industry for key information to remain confidential until two years or upon relinquishment.
“Ideally, to generate information requires a lot of resources, hence it safeguards data ownership.”
She said it is within the law for governments to keep certain data or information confidential even after a mineral tenement has expired or been relinquished.
Possible suspension
Philip Nyakandu, policy director for Africa at Global Financial Integrity, a Washington-based group focused on exposing financial crimes, said Malawi could be penalised, even suspended as an Extractive Industry Transparency Initiative member if it fails to publish its mining agreements.
He said: “The Eiti board can suspend a country for failing to submit its Eiti report within the prescribed timeline, usually 18 months after the end of the fiscal year.
“The Eiti board may delist Malawi from the initiative and delisting it removes Malawi from the community of countries committed to transparency in the extractive sector.”
Nyakandu said failure to submit Eiti reports could also harm Malawi’s international reputation.”
Malawi has failed to produce an Eiti report since 2022, according to government records.
Leonard Mushani, a technical expert in Malawi’s Eiti secretariat and administrative manager in the Ministry of Finance and Economic Affairs, acknowledged that delays in the publication of the report was because of procurement challenges and disruptions caused by frequent changes in personnel.
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